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166

THE ANALYSIS OF INDONESIA’S INTERNATIONAL BUSINESS

Annisa Edelia

, Nuri Aslami

Islamic State University of North Sumatera, Indonesia

nyssaedell@gmail.com

nuriaslami@uinsu.ac.id

Abstract

International Business is a business whose activities pass the borders of the country. This definition includes

not only international trade and overseas manufacturing, but also a thriving service industry in areas such as

transportation, tourism, banking, advertising, construction, retail trade, large trade and mass

communications. International marketing is different from International Business, International Trade is an

inter-state transaction usually done by traditional way that is by way of export and import. With the export

and import transactions, there will be a balance of tread, while international marketing which is the state of a

company can be involved in a business transaction with other countries, other companies or the general

public abroad. This international business transaction is generally an attempt to market overseas production.

Stages in entering into international business: Incidental exports, Active Exports, License Sales,

Franchising, Marketing outside the country, Production and Marketing Abroad. The obstacles in conducting

international business are: Different Foreign Currencies, Low Resource Quality, Difficult State Payments

and Great Risks, The existence of Import Policy of a State, The War, The existence of Regional Economic

Organizations.

Keywords: Indonesia, international business, trade

This work is licensed under CC BY-SA 4.0

INTRODUCTION

Economic transactions carried out by residents of one country with other countries, both

individually, and the government. The occurrence of international trade cannot be avoided by

any country, because each region has advantages and disadvantages in one of its natural

resources. Excess natural resources are anticipated by importing them abroad. Similarly,

shortages of natural resources can be addressed with international trade in exports and imports.

Since ancient times, humans always interact with others including in terms of meeting daily

needs. History proves that centuries ago residents in various parts of the world have conducted

economic transactions with residents in other countries, such as the silk road and Amber Road.

A few centuries later economists formulated theories related to the economic activity of the

population across countries. For now, the international business of import exports is no longer

a matter of overcoming the shortage of natural resources and human resources in a country.

International trade has become a mutualist symbiotic relationship between several countries.

How not, through export and import activities, new jobs become open, encouraging

industrialization, transportation progress, and the presence of international companies.

International trade activity is inseparable from exporters and importers. The following will be

fully presented about export trade and import on an international scale. Indonesia's export

products are tempestuous. Especially, postworld summit expo day in China. Indonesian

product stands are visited. Apparently, they are interested in Indonesia. Indonesian products

have originality. For example, batik, angklung, and so on. Indonesia is now ranked 16th in the

world economy. This is a great achievement because the Indonesian economy is appreciated

internationally.

International Business

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International business is a business whose activities cross national borders. This definition

includes not only international trade and manufacturing abroad, but also a growing service

industry in fields such as transportation, tourism, banking, advertising, construction, retail

trade, large trade and mass communication. International business is a business activity

conducted between one state and another. Businesses are of different types, and, as a result,

businesses can be grouped in different ways. That for reasons of meeting daily needs, humans

cannot be separated from trading activities. The person who plays an important role in these

activities is the trader. They are the ones in charge of delivering goods to consumers. Buying

and selling activities today are not only limited between residents in one country. Trade

activities have begun to penetrate into the international or interstate world.

The exchange of goods and services between one country and another is what is then

referred to as international business. As mentioned above, that international business is a

business activity carried out across national borders. Business transactions like this are

international business transactions (International Trade). A business transaction is conducted

by a company within a country with another company or individual in another country called

International Marketing. International marketing is different from International Business.

International Trade

In international trade which is a transaction between countries it is usually done in the

traditional way, namely by export and import. With the export and import transactions, there

is a balance of trade between countries (balance of tread). A country can have a trade surplus

or deviation of its trade balance. The surplus trade balance indicates the circumstances in which

the country has a greater export value than the value of imports made from its trading partner

countries. With the balance of trade that has a surplus, if the other circumstances are constant

then the cash flow into the Country will be greater with the cash outflow to the trading partner

country. The large flow of cash in and out between countries is called the balance of payments

(balance of payments). If the balance of payments is in surplus, it is said that the country is

experiencing an increase in foreign exchange. Conversely, if the country experiences a

deviation of its trade balance, it means that the value of its imports exceeds the value of exports

that can be done with other countries. So, the country is experiencing a balance of payments

deviation and facing a reduction in state foreign exchange.

International Marketing (International Marketing)

International marketing which is the state of a company can be involved in a business

transaction with another country, other companies or the general public abroad.

International Business Transactions

This international business transaction is generally an attempt to market the results of

production abroad. In this case, entrepreneurs will be free from trade barriers and import duties

because there are no import export transactions. By carrying out production and marketing

activities in foreign countries, there are no import export activities. The products marketed can

be goods and/or services. This transaction can be reached by: 1) Licencing; 2) Franchising; 3)

Management Contracting; 4) Marketing in Home Country by Host Country; 5) Joint

Venturing; and 6) Multinational Corporation (MNC).

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All forms of international transactions require payment transactions that are often called

fees. The country (Home Country) must pay, while the sender (Host Country) gets the fee.

Understanding international trade with international companies is often considered the same,

whereas different. The main difference lies in its treatment where international trade is

conducted by the state while international marketing is the activity carried out by the company

that determines the more active, more progressive business activities than international trade.

METHOD

Qualitative research method according to Sugiyono (2005), qualitative research method is

a research method used to examine the condition of natural objects. Qualitative descriptive

research seeks to dig up information that fits the picture of conditions, objects, or social

phenomena when research is conducted.

This research uses a qualitative approach with a method of descriptive analysis, this

method is considered relevant and in accordance with the research to be conducted, namely to

gain an actual understanding of International Business in Indonesia, and by using this method

can comprehensively reveal how incidental export processes; active export; sale of licenses;

franchising.; marketing abroad; production and marketing abroad, so researchers believe that

qualitative research methods are considered relevant.

RESULTS AND DISCUSSION

A country or a company conducts international business transactions either in the form of

international trade generally has some consideration or reason. These considerations include

several reasons or considerations. The development includes economic, political or socio-

cultural considerations and not even rarely on the basis of military consideration. International

business is inevitable because there is not a single country in the world that can meet all the

needs of its country from goods or products produced by the State itself. No country can meet

100% self-sufficiency. This is due to the uneven spread of resources from both natural

resources and human resources. The inequality of these resources will result in the existence

of a certain advantage of a particular country that has certain resources as well.

For example, The State of Australia which has a very large landmass that has a very small

number of people, whereas Hong Kong has a very narrow landmass but a very dense

population. The fertility of the soil will also not be the same between one state with another

there is a country suitable for certain plants while the other state can be said to be impossible

to grow plants that are needed by humans. This situation determines the implementation of

business or international trade. Therefore, we can see some of the reasons for carrying out

international business mentioned as follows.

International Specialization

In relation to certain advantages or strengths and their weaknesses, a State must make

strategic choices to produce a strategic commodity, namely:

Make the most of the power that turns out to be really superior so that it can produce

it more efficiently and the cheapest among other countries.

Focus on commodities that have the least weakness among other countries.

Concentrate his attention on producing or mastering commodities that have the

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highest weaknesses for his country

Absolute Advantage

A country can be said to have an absolute advantage if it holds a monopoly in producing

and trading the product. This will be achieved if no other country can produce the product so

that the country becomes the only producing country that is generally due to the natural

conditions it has, such as mining, plantations, forestry, agriculture and so on. In addition to

natural conditions, absolute advantage can also be obtained from a country that is able to

produce the cheapest commodity among other countries. This kind of advantage in general will

not be able to last long because technological advances will quickly overcome more efficient

ways of production and cheaper costs.

Comparative Advantage

This concept of comparative advantage is a more realistic concept and is widely found in

international business. It is a situation in which a country has a higher ability to offer the

product compared to other countries. Higher ability to offer a product can be realized in various

forms, namely:

1) Lower fare or offer price

2) Superior quality even though it costs more

3) Better continuity of supply

4) Stability of good business and political relations

5) The availability of better supporting facilities such as training and transportation

facilities

6) A country will generally concentrate on producing and exporting commodities for

which it has the best comparative advantage and then import commodities for which

they have the ugliest comparative advantage or greatest weakness. The concept will

be seen clearly and clearly if we try to examine the trade balance of our country

(Indonesia) for example. From that trade balance we can see what commodities we

export are commodities that have a comparative advantage for Indonesia and those

we import are the ones whose comparative advantage is weakest.

Business Development Considerations

Companies that have been engaged in a particular field in a business in the country often

try to develop their market abroad. This will give rise to several considerations that encourage

why a company implements or goes into the international business:

1) Utilizing the capacity of idle machines owned by a company

2) The product in the country has experienced a level of saturation and may even have

experienced a stage of decline (decline phase) while abroad is actually developing

(growth).

3) Competition that occurs in the country is sometimes sharper because competition for

these products abroad

4) Developing a new market (abroad) is an easier action than developing a new product

(domestically).

5) The potential of the international market in general is much wider than the domestic

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market.

Stages in Entering International Business

Incidental Export

In order to enter the world of international business a company generally starts from an

early involvement, namely by conducting incidental exports.

Active Export

This stage the country company itself began to be active to carry out management of the

transaction.

Licensing

This stage the entrant country sells the license or brand of its product to the receiving

country.

Franchising

The next stage is to see a more active stage, namely the company in a country selling not

only its license or merchandise brand but complete with all its attributes including equipment,

production process, recipes mixed production process. And others. Franchise form that is

currently popular in our country and also in other countries is a proven system management,

has a well-known and popular name, and an established performance record for assessment

tools. Conversely, this form also has the disadvantage of high costs to acquire a franchise,

business decisions will be limited by franchitor, and greatly influenced by the failure of other

forms of franchise.

Marketing di Overseas

This form requires a higher intensity of management and involvement because the host

country company must be really active and independent to do marketing management for the

product in a foreign country (Home Country).

Total International Business

The latter stage is the most intensive stage in involving yourself in international business,

namely the overseas production and marketing stage. This stage is also referred to as "Total

International Business." This form is what gives rise to MNC or Multi National Corporation

which is a multinational company. In this stage foreign companies come and set up companies

in the foreign country complete with all their capital and then carry out production processes

in the country, then sell the production in the country as well. This form has a positive element

for developing countries because in this form the receiving state does not need to provide very

much capital to set up the factory which in general the developing country is still poor in funds

for the development of its nation.

International Business Barriers

Barriers to entering International Business

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Implementing international business has far greater barriers than in the domestic market.

Other countries must have their own interests to inhibit the implementation of international

business transactions. In addition, the customs or culture of other countries will of course be

different from their own country. Therefore, there are several obstacles in entering

international business, namely:

Quota limits and import duties the quota limit in international business is if there is a

country that does not allow the transfer of large quantities of goods. While the import

duty tariff is a tax imposed on goods traded both imported and exported goods.

Differences in language, socio-cultural: Differences in language are often an obstacle

to the smooth running of international business, this is because language is a vital

communication tool both spoken and written. Socio-cultural influence in

international business for example: Indonesia as a Muslim-majority country, must

reject the presence of international companies that sell haram food, such as pork. In

addition, in terms of fashion. Fashion companies will not market bikini products and

other open clothes because they do not fit the culture of Indonesian people who dress

modestly with the characteristics of closed clothing.

Political and legal/statutory conditions: Poor political relations between one country

and another will also result in limited business relations between the two countries.

The provisions of laws or regulations that apply in a country sometimes also limit the

ongoing international business. Example: When democracy is guided, Indonesia

tends to side with the eastern bloc, so Indonesia's proximity to China and Russia leads

to a strained relationship between Indonesia and the western bloc in various ways

including trade in goods to and from western bloc countries.

Other barriers to trade or international business are operational issues, including:

Transportation or transportation of goods traded from one country to another.

The state of large waves that interfere with ship travel or weather conditions

that affect freight traffic by air is one example of transportation problems

hampering freight forwarding activities temporarily. The situation can be

more serious if the goods sent are goods that quickly are in an unfit condition

such as fish. The delivery time of inappropriate goods sometimes makes the

intended Country directly cancels the purchase.

Rules or policies. Other countries, in the form of protection, namely: efforts

to protect industries in the country so as not to be rivaled by industries from

abroad that enter the country. For example: there is protection of Chinese

goods in the form of stationery industries not to enter the Indonesian market,

so that Indonesian-made stationery companies can be better-selling in the

local market, besides that the government usually lends for business

development to the company so that it can one day compete in the

international market.

Difference in wage levels: It can be exemplified if there are multinational

companies that in the expansion of their business to a country, giving wages

to their employees are too small due to various things such as currency

exchange rates.

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International Trade Barriers

Every country always wants trade conducted between countries to run smoothly. However,

sometimes trade activities between countries also experience some obstacles. These barriers

can harm countries that conduct international trade. Here are some of the frequent barriers to

international trade.

1) Difference in currency between countries. In general, the currency of each country is

different. This difference is what can hinder trade between countries. Countries that

carry out export activities, usually ask the importing country to pay using the currency

of the exporting country. The payment will certainly have to do with the value of the

money itself. The value of money in each country is different. If the value of the

exporting country's currency is higher than the currency value of the importing country,

it can increase spending for the importing country. Thus, in order for both countries to

benefit and more easily the trade process needs to establish the currency as an

international standard.

2) Low Quality of Resources. Low quality of labor can hinder international trade. Because

if human resources are low, then the quality of production will be low as well. A

country that has low quality goods, it will be difficult to compete with goods produced

by other countries of better quality. This is certainly an obstacle for the country

concerned to conduct international trade.

3) International Payments Are Difficult and The Risks Are Great When conducting

international trade activities, importing countries will have difficulty in terms of

payments. If paying for it directly will have difficulty. In addition, it also has a great

risk. Therefore, the exporting country does not want to accept payments by cash, but

through international or telegraphic transfer or using L/C.

4) The existence of import policy from a country. Each country will always protect its

own manufactured goods. They don't want their manufactured goods to be overtaken

by goods from abroad. Therefore, each country will enact policies to protect domestic

goods. One of them is by setting import tariffs. If import tariffs are high then the

imported goods will become more expensive than domestic goods, resulting in people

becoming less interested in buying imported goods. This will be an obstacle for other

countries to trade.

5) There's a war. War can cause relations between countries to be cut off. In addition, the

country's economic condition will also experience sluggishness. So this can cause

trade between countries will be hampered.

6) There are regional economic organizations. Usually in one regional area there are

economic organizations. The purpose of these organizations is to advance the

economies of its member states. The policies and regulations issued are only for the

benefit of member states. A regional economic organization will issue export and

import regulations specific to its member countries. As a result, if any country outside

the member of the organization trades with a member state, it will have difficulty.

International Business Challenges Coming to Indonesia

The challenges facing Indonesia are huge which include:

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1) Lack of national capacity

2) Weak physical infrastructure

3) Less conducive to social-political-legal conditions

4) Low foreign investment.

5) High economic costs

6) A less competitive workforce that all makes Indonesian products less competitive in

the international market

Obstacles made by Indonesia

The policy, imposed on international trade, aims to protect domestic industries. Policies to

protect domestic goods from the competition of imported goods are called protection.

Protection in international trade consists of tariff policies, quotas, import bans, subsidies, and

dumping.

1) Fare. Tariffs are trade barriers in the form of taxing imported goods. If an imported

item is subject to tariffs, then the selling price of the goods in the country becomes

expensive. This causes people to be reluctant to buy these goods, so that domestically

produced goods are more enjoyed by the community. Quota. Quotas are a form of

trade barrier that determines the maximum amount of a type of goods that can be

imported in a given period. Similar to tariffs, the effect of the enactment of quotas

resulted in the prices of imported goods being high because the number of goods was

limited. This can happen because of restrictions on the number of imported goods,

causing the average cost for each item to increase. Thus, the enactment of quotas can

protect domestic goods from competition of foreign goods.

2) Import Ban. The import ban is a government policy that prohibits the entry of certain

goods into the country. The import ban policy is carried out to avoid goods that can

harm the community. For example, prohibiting the import of beef containing anthrax

disease.

3) Subsidies. Subsidies are government policies by providing assistance to domestic

products. Subsidies made by the government can be in the form of tax relief, providing

facilities, giving cheap bank credit or giving gifts or incentives from the government.

The existence of subsidies, the price of domestic goods becomes cheap, so that

domestically produced goods are able to compete with imported goods.

4) Dumping. Dumping is a policy carried out by a country by selling goods abroad

cheaper than sold domestically.

CONCLUSION

International business is a business whose activities cross national borders. International

Trade is a transaction between countries that is usually done in the traditional way, namely by

export and import. With the export and import transactions, there isa balance of trade between

countries (balance of tread), while the international gold that is the state of a company can be

involved in a business transaction with another country, other companies or the general public

abroad. This international business transaction is generally an attempt to market the results of

production abroad. Reasons to conduct international business include positions between

nations, comparative advantage, and business development considerations.

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174 Vol. 1, No. 3, December 2021

The stages in entering international business include incidental exports, active exports,

licencing, franchising, marketing abroad, and production and marketing abroad. The barriers

to doing international business are differences in currency between countries, low quality of

resources, difficult interstate payments and great risks, the wisdom of imports from a country,

the occurrence of wars, and the existence of regional economic organizations.

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